Toyota Motor Corp skidded more than 3 percent after it said on Thursday it would recall millions more vehicles in the United States, its second massive recall in four months, this time to fix potentially faulty accelerator pedals. US President Barack Obama proposed limiting how banks invest, saying they should no longer be allowed to own, sponsor or invest in hedge funds for proprietary profit - news which pushed US stocks to their biggest one-day percentage drop since October.
Proprietary trading, where a firm uses its own money to make bets on markets, has been an earnings engine at big investment banks. Yet the Tokyo decline was likely to be short-lived, said Junichi Misawa, senior fund manager at STB Asset Management.
"Generally speaking, a catch-up rally in Japanese stocks that have so far lagged behind (global markets) will likely continue, limiting much further losses." The Nikkei is up about 20 percent over the last nine months, underperforming both the Dow Jones industrial average and London's FTSE 100, both of which gained about 30 percent.
The benchmark Nikkei shed 277.86 points to 10,590.55, its lowest close since December 30. On the week, the index shed 3.6 percent, its biggest weekly decline in about two months, partly as investors took a breather after the Nikkei hit 15-month highs last week.
The broader Topix dropped 1.6 percent to 940.94. Shin-Etsu Chemical, the world's biggest maker of silicon wafers used to make semiconductors, tumbled 6 percent to 4,945 yen after reporting on Thursday a quarterly profit drop and said it expected its annual profit to halve from a year earlier.
About 2.9 billion shares traded hands on the Tokyo exchange's first section, compared with the seven-month highs above 3 billion shares logged last week. Declining shares outnumbered advancing ones by nearly 6 to 1. High-tech shares, which buoyed the market the day before, took a beating after the yen strengthened and after Shin-Etsu's bleak outlook made investors nervous about prospects for other high-tech companies.
Electronics parts maker Kyocera Corp dropped 4.5 percent to 8,020 yen, while chip-tester maker Advantest lost 3.4 percent to 2,510 yen and TDK Corp fell 4.1 percent to 5,870 yen. The dollar slipped 0.5 percent to 90.00 yen after earlier dipping as low as 89.78 yen, its lowest in a month, while the euro slipped 0.3 percent to around 127.11 yen.
Investors fret about a stronger yen because it eats into exporters' profits when repatriated. Toyota lost 3.2 percent to 4,055 yen and Honda Motor Co shed 2.4 percent to 3,230 yen. Resource-related shares fell after copper tumbled to a three-week low on Thursday and aluminium also fell. Crude oil extended losses on Friday to hit a four-week low after US government data showed a large build in gasoline inventories and a sharp drop in US refining activity.
Mitsubishi Corp sank 4.5 percent to 2,292 yen, fellow trader Mitsui & Co shed 2.9 percent to 1,394 yen, and oil and gas field developer Inpex lost 4.2 percent to 677,000 yen. Columbia Music Entertainment jumped 21.2 percent to 40 yen after mobile phone content firm Faith Inc announced it would become the music label's top shareholder with a stake of 31.39 percent. Shares of Faith were down 0.5 percent at 10,050 yen.